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Is the FCC pining for the good old days?

By: Scott Bradner

It was not much of a surprise when the FCC figured out a way to approve the AT&T / Bell South merger before last year ran out. FCC Chairman Kevin Martin had been pushing for this result for months but had not been able to get enough votes from his fellow commissioners to approve the deal. When push came to shove AT&T came up with a few temporary and perhaps meaningless “concessions” that convinced the two democratic commissioners to go along with the Chairman’s wishes and the merger was approved on the last work day of 2006. Given Chairman Martin’s public statements, and the press release the FCC put out to announce the approval, we may be down to two or even one telephone company in the US by this time next year.

The FCC press release (http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-269275A1.pdf) lists five benefits the FCC sees in the merger and summarizes the conclusions of the FCC’s analysis of the effects on competition for six groups of services. In all but two of these, the FCC conclusion would also apply if the newly minted AT&T decided to merge with both Verizon and Quest.

The benefits seen by the FCC include broadband deployment, IPTV deployment, better management of Cingular Wireless, improved national security, disaster recovery and government services from a “unified end-to-end IP network,” and better disaster response because of “unified operations.” Other than managing Cingular the rest of the benefits would be even better if there were only one US phone company.

In two of the six service areas (mass market voice and Internet service) the FCC recognized the reality that the big US telephone companies simply do not compete outside their areas except for wireless. This is just as true for Verizon and Quest as it was for AT&T and Bell South. In three of the other areas (special access, retail enterprise and international services) I see nothing that would be different in the FCC analysis if the FCC were being asked to approve the old Ma Bell (without the manufacturing arm). (Not that I think the FCC analysis makes much sense.) The only area where a merger of Verizon, AT&T and Quest would have a problem with this FCC is in the area of Internet backbone services -- this could be dealt with the same way it was once before, spin off one of the backbones and just use the remaining one.

A lot of press coverage was focused on the voluntary “concessions” that AT&T made, particularly in the area of network neutrality. But all the concessions are temporary and may not be all that meaningful since the important ones do not apply to AT&T’s new infrastructure if its used to support IPTV. In addition, based of the statements of Chairman Martin and Commissioner Tate, it looks like the FCC would refuse to enforce the concessions in any case.

I can understand the nostalgia that this FCC seems to have for the telecom world of old. Things were so much simpler when there was just one company to deal with and that one company provided all needed telecommunications services. There was none of this dynamic and unpredictable innovation. No companies going out of business -- just one monopoly doing the public good.

I sure hope that the new Congress does not succumb to this picture of a past that never was and figures out a way to preserve something that has at least a faint echo of today’s Internet.

disclaimer: Harvard has lived through more of the past than the FCC has but has not issued an opinion on the FCC’s vision thus, the above observation is mine.